How Netflix Multiplied Its Value By 500x

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Growth Story is a weekly podcast that breaks down the strategy and tactics utilized by high growth companies, in a short case study format hosted by Scott D. Clary (@scottdclary)

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Welcome to success story, the most useful podcast in the world. I'm your host, Scott D clary. The success story podcast is part of the hub spot podcast network. The hub spot podcast network has incredible podcast like the Martec Podcast, hosted by Benjamin Shapiro. Each week the Martech podcast tells stories of world class marketers who use technology to create lasting success with their business and their careers. If you like any of these topics, you're going to like the Martyche podcast. How Science is changing advertising, how to set up a crm so you actually use it. Private equities take on digital transformation by big social is focused on newsletters. If these are topics that resonate with you, go check out the MARTECH podcast wherever you get your podcast, or you can also go listen on hub spotcom slash podcast network. So today I'm going to walk you through a case study, the story of Netflix. How they started and eventually disrupted cable television, how they disrupted the movie industry, how they disruptive...

Blockbuster, how they became the largest entertainment company in the world. This is the story of Netflix, their growth strategy, their initial concepts, from DVD subscriptions all the way through to becoming the streaming king of the world. This is a business case study. This is Netflix has growth store worry. So Kay study how Netflix multiplied his value by five hundred x. So our story today dates back to one thousand nine hundred and ninety seven, beginning with the failure of the highly popular blockbuster. So, for those who are too young to remember, blockbuster was a movie rental service with a physical store. They had physical stores full of DVD's all over the US, Canada, North America. The American tradition, I've say general, general weekend tradition, was you rent a movie on Friday night, you watch it with your family Friday or...

Saturday night, you bring it back on Monday. Back in one thousand nine hundred and ninety seven blockbuster, and I think there's only one blockbuster left in the world now. But blockbuster was a billion dollar company, with more than six thousand stores in the US alone, having revenue of three hundred ninety one billion dollars. But the problem was at sixteen percent of their revenue came from late fees, which was annoying millions of its customers. This was part of their business model. That was a huge portion of the revenue, not just renting the movies, but counting on people to screw up. One of the customers, one blockbuster customer, got fined and excess of forty dollars in late fees. This annoyed him so much that he went on to start his own company. That man was none other than read Hastings, and the company that he founded is what we know as Netflix today. But netflix didn't always start out as the subscription service. You turn on your TV you see a whole bunch of bespoke made for netflix movies and TV shows. No, it started off much different. So let's first understand how NETFLIX started off. It was...

...very smart, read and Mark Randolf. Those are the two cofounders. They were very smart in how they exploited the most undesirable attribute of their competition. So in one thousand nine hundred and ninety seven, netflix started as a subscription based DVD in mail service, as in, if you wanted to watch a movie instead of going to blockbuster, you made a dvd order online, you made a list of DVD's that you wanted to watch online and you send it to Netflix. They would deliver the DVD within two to three days. When you return the DV DVD it'd requested, they would send you the next one on the list. All of this was being offered at an affordable subscription fee, without any lay fees at all. So they were doubling down on the worst part of instore movie rentals. Of Blockbuster was offering between two thousand and two thousand and three, way before they had this streaming service, the company still enjoyed consistent growth. Netflix when public and make two thousand and two again,...

...way before the streaming service, with initial share price of fifteen dollars. Today and Netflix share is worth over five hundred dollars. By the end of two thousand and six, Netflix had over six million subscribers, boasting a seven year annual compound growth rate of seventy nine percent. Finally, they had become profitable. In two thousand and six, the company generated more than eighty million dollars in profits. But they never got comfortable with their success. So by two thousand and seven, Netflix introduced its online streaming service, which was the first iteration of what we know today as the Netflix that we all know and love. They called it watch now. The service was truly radical for the time. Many people thought the company was crazy. And keep in mind they were public, they had shareholders to answer to, they had a board of directors, they had a lot of people that were watching them. They were not a startup. When they introduced streaming, they were profitable, they were doing well, but they were not happy with, being comfortable with their success. Remember, Netflix's goal was to reduce friction and accessing entertainment. This was always their vision and everything that they did aligned with their vision. This is...

...a great list of our founders to if you don't have that vision, if you don't have that North Star that you're going towards, then a lot of people would have just been happy with a success that Netflix had when they were just getting DVDs to customers. They were reducing friction to accessing entertainment that way. But they wanted to take it a step further. So first Netflix or fined and improved it's DVD by mail service through faster delivery, more distribution centers and eliminating fees. That was the first way they wanted to reduce friction and accessing entertainment. Of course, they already did this by removing any sort of late fees, but they double down on it. But here's the thing. Netflix was hitting some big numbers and even though they were hitting big numbers, they were doing very well in the DVD rental business. They knew that it wouldn't last. They knew they had to do something different. As an entrepreneur, if you get comfortable with a single business success, that is going to be your death that's going to be your downfall. Most companies failed to evolve, they fail to adapt to a changing business dynamic and environment. They've been...

...forced out of the market. They get disrupted. So I think about blockbuster, blackberry, no KIA. Think about what Uber did the cavs? Think about what air being be did the hotels? If you do not disrupt, if you are not future proofing, if you are not forward thinking, you are going to get disrupted. So netflix started early to future proof their business by entering the video streaming market. They wanted to be the disruptors, not they didn't want to be disrupted. So, by making this shift, they can now provide subscribers with instant access to thousands of titles that you could Binge Watch on any device. While cable companies were more concerned with traditional business models and quarterly revenue targets. Blockbuster wasn't doing anything. They were just business as usual. Netflix was looking at decade ahead into the future. So, needless to say, if Netflix wanted to reduce friction to accessing entertainment and they wanted to allow everybody to stream movies online, the technology to make their vision of reality was non existent. They took on a huge risk and invested more than forty million dollars in developing new streaming technologies in two thousand and seven. It's...

...mind boggling to think that they invested forty million when they were doing eighty million in revenue per year, because there was literally no consumer demand for what they were offering. A lot of people thought the idea wouldn't work. However, since most people didn't believe in the tech, they didn't believe in the concept. There was no competition for streaming. It's not like there is today, with all these different streaming companies or all these different mainstream networks trying to get into streaming. This was two thousand and seven. So by the time everyone else finally caught on, and some people are still just catching on now in two thousand and twenty one, Netflix was way ahead of them. So the company doubled down, invested forty million dollars, had the best streaming tech, the most extensive list of titles, because they already were doing this for x many years before. They had the largest subscriber base. In Two Thousand and eight, the company announced it was stopping its DVD retail sales one week after debuting the watch, now on all MAC and apple platforms. By Two Thousand and eleven, Netflix rebranded its DVD rental business, spreading its streaming business and...

...rental business and changing them all into subscription packages. And that's really where that hockey stick growth just took off. So from two thousand and thirteen, you can quite honestly say netflix began to conquer the world, or at least the streaming world. The company Dove headfirst into original programming with a high profile political drama house of cards. Both critics fans gave the show rave reviews and they're already dominating the streaming market. Now they're doing original pro programming and it was it was an absolute hit. That was a crucial turning point in Netflix's growth, because when they dropped DVD's and they dropped retail DVDs and they drop subscription DVDs and they invested all of this into they invested so much money into into subscription streaming and even like even the tech behind subscription streaming. These were all major risks, all major risks. This was a publicly traded company. This could have blown up in their face. But after they really figured out there streaming and then they started going into original titles and those hit home and those...

...really resonated, that's when they really like. Their growth was exponential and at this point nobody could keep up. From two thousand and sixteen onwards, Netflix received numerous awards and accolades, including fifty four nominations at the sixty eight primetime emmy awards, and everything else's history. They sign simultaneously went live and a hundred and thirty countries. Their feature films also became increasingly ambitious and attracted some of Hollywood's finest screenwriters, directors actors. In two thousand and seventeen, Netflix subscribers had surpassed a total number of cable subscribers in the United States and with this Netflix ascent effectively became the largest entertainment provider in the world. So what are some key takeaways from their incredible growth. Their incredible success story will number one one. Identify your key growth metric and stick with it. It's no secret the most new businesses fail. Some fail because they take too many risks...

...that once others fail because they don't aim high enough or take any risks at all. As a Businessperson, as an entrepreneur, it is essential to identify a massive potential market that you can grow into and test and iterate and try things so that you can exploit as much out of that potential market as possible. You can get the most out of that potential market, because the first way you tackle that market may not be the most successful way. So you have to try and test and iterate, but you have to know what that key growth metric is. So, for example, so for Facebook, a social media giant. They have billions of users, but they still care about users engagement and still try and figure out new ways to maximize user engagement. That is their key growth metric. Google still interested in the number of searches conducted every single month, even though, like, who would ever say that there's a competitor for Google right now? But they still care about the number of searches conducted every single month. Despite being one of the largest tech companies...

...in the world, they still know what their metric is, and netflix their key metric was how many movies a user watched. They knew that if they could figure out how many movies the user watched and they could find ways to get a user to watch more movies, they would be successful. So that is reducing friction to access entertainment, getting a user to watch more movies. That was their growth metric and everything they did revolved around that metric. They also made some obvious moves, and you can make obvious moves, so obvious moves don't necessarily have to be done. So by two thousand and seven it was obvious that the DVD rental market was facing a decline. It was an obvious move to look for a way to attract new customers where while retaining existing ones. It was an obvious move to move away from DVD's blockbuster didn't make the obvious move. Data was showing that it was an obvious move. The evolve or die was very, very much a thing, but too many established...

...players could not grasp the change was coming. If Hastings had listened to the naysayers who thought that streaming videos was nothing but a fad, there would be no Netflix and they would have not have had the success that they had and there would probably be someone else that would have moved into that position. So focus on obvious moves. Pay attention to your market, pay attention to your customers, their habits, because they are going to tell you where they want to go and if you don't listen to them again you will be disrupted. Last thing was focus on quality. This is so obvious, but it's I just have to reiterate throughout the history of Netflix, everything they did was high quality. You have to understand that this allowed them to achieve that North Star metric, that key KPI, that key growth metric, from getting DVDs to customers faster to developing new streaming technologies by investing forty million dollars in technology for a market that at the time didn't exist. The quality of the Netflix experience...

...and the quality of the content was always at the forefront. They never ever set I sacrificed any sort of quality. This has helped them build not only a large subscriber base but a loyal audience of fans. Quality doesn't necessarily mean just spending more money on your product. How's your customer support? How's your onboarding process? Improving the customers experience should be one of your cornerstones for your company. Just in case customers don't see things from your perspective, be quick to listen to them and evolve accordingly. And those three things. Of course, they've had tons of different strategies over the years that have helped them be successful, but those three things has really helped Netflix get from where they started to where they are today. That is the story of Netflix and that is why they're so successful.

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